LONDON — Compagnie Financière Richemont sees better days ahead.
It certainly needs them. The company, parent of brands including Cartier, Van Cleef & Arpels, IWC and Dunhill, said profits fell 23.5 percent, to 907 million euros, or $1.22 billion, in the six months to Sept. 30, due to volatile trading conditions worldwide and charges linked to the firm’s hedging program.
First-half sales grew 2 percent, to 5.43 billion euros, or $7.33 billion, against a backdrop of uneven demand. At constant exchange rates, sales grew 4 percent.
All figures have been converted at average exchange rates for the periods to which they refer.
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In October — the start of the second half — sales grew by 4 percent at actual rates, but fell 1 percent at constant rates, against an exceptional month for high jewelry sales in the corresponding period last year, the company said.
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In October, Richemont said it saw growth in the Americas, Europe and the Middle East and continued lower sales in the Asia-Pacific region and Japan.
Luca Solca, managing director at Exane BNP Paribas, said on Friday that the results confirm “a difficult demand environment for luxury goods and a likely low-key end to a soft 2014 for the industry. Asia-Pacific — and China within it — seem [to be] on the back foot.”
Solca, who recently returned from a trip with his team to the region, said luxury players overall need to reduce their exposure to Hong Kong in the medium term, following a Golden Week in which sales were down 15 to 35 percent, due to the political protests.
“The order of the day seems to be that of a sobering and more reasonable [Chinese] consumer; anticorruption is still on at full blast, prompting a prudent and low-profile behavior by those in high places; macro-economic growth continues to weaken, and consumer sentiment is weakening on the back of declining real estate prices,” Solca said in a separate note.
Johann Rupert, Richemont’s chairman, called the first-half results “fairly resilient overall,” given the volatility of the environment, and added that price increases in certain markets as well as product launches helped to drive sales in the six-month period, while lower raw-material prices and cost-containment measures helped to mitigate the “subdued” performance.
Rupert also flagged a “difficult” external environment ahead of the holiday trading period.
Sales in the Asia-Pacific region, which accounted for 38 percent of Richemont’s overall sales in the half, declined 2 percent at actual exchange rates and were flat at constant rates, with Hong Kong and China the main markets behind the lukewarm performance.
However, there are those who think the tide could soon turn for Richemont and its luxury peers, such as LVMH Moët Hennessy Louis Vuitton and Kering, both of which also are experiencing slower growth.
“We continue to believe that the Hong Kong slowdown is not linked to a lower appetite from Chinese consumers for luxury products, and we do expect the Chinese to resume travel in early 2015,” said a note from analysts at HSBC.
Currency — and especially the stronger dollar — is also beginning to work in favor of the luxury goods firms. Richemont’s chief financial officer Gary Saage said during a conference call on Friday that, “up until August, exchange rates were against us, but in September they turned positive, and they were positive in October, too. There may be good times ahead.”
Others are upbeat about the future, as well.
Citi said in a report on Friday that it remained “overall positive” on Richemont’s prospects for stronger earnings momentum in the 2015-16 year, while Morgan Stanley pointed out that, in October, at the start of the second half, Richemont was working with tough comparatives from the previous year and called the group’s performance in the month “reassuring.”
Rupert’s long-term view is brighter than his short-term view. “We can look forward positively,” he said. “We remain confident that demand for high-quality products will continue to grow in the global market.”
In the first half, sales in Europe and the Middle East were up 6 percent, at actual and constant exchange rates, while the Americas region notched a 10 percent gain and 13 percent at constant rates. Sales in Japan were down 13 percent on a reported basis and 7 percent at constant rates.
Jewelry sales in the six months were particularly strong, rising 1 percent at actual exchange rates and 10 percent at constant ones. Richemont said that while overall demand for Cartier and Van Cleef & Arpels jewelry was good, the appetite for Cartier’s watch collections remained weak.
Richemont’s specialist watchmaker division saw sales increase by 2 percent, reflecting “cautious sentiment” in Hong Kong and Mainland China as well as currency headwinds, the company said.
With regard to other areas of the business, Saage said during the call that Net-a-Porter tipped into profitability in the first half, and its sales growth exceeded the group’s average. Asked about continued market speculation that Net is for sale, Saage said, “We made very clear last May that it is not. We love all our 20 ‘children,’ and none of the companies is for sale.”
Addressing Dunhill’s and Lancel’s increased operating losses in the first half, Saage said both companies are making progress.
“We already said that Dunhill would get worse before it got better. The autumn-winter collection seems to be getting a good reception, and we are coming out with new product,” he said, noting that the losses partly stemmed from a culling of extraneous wholesale accounts.
Lancel is “very French-based, and France is not the most brilliant market right now,” he said. The brand’s “very dynamic” team would continue to focus on France and shift away from markets such as Hong Kong and Russia, Saage said.